Micro States Economics. The MIRAB and SITE/PROFIT Model in European Small States


Term Paper, 2017
19 Pages, Grade: 1,7

Excerpt

Table of Contents

1. Introduction

2. My Cluster of European States

3. Classification of Economic Models
a) MIRAB Economy
b) SITE Model/ PROFIT Model

4. MIRAB and PROFIT in European Small States
a) Andorra
b) San Marino
c) Monaco
d) Liechtenstein
e) Malta

5. Conclusion

Bibliography
Web sources (accessed in July/August 2017)

1. Introduction

Being socioeconomically successful is a task in itself. However, being socioeconomically successful as a Small State seems to be a more difficult task. If you look at the gross domestic product per capita you might not find a correlation between a low GDP per capita and the smallness of a state.[1] If you take a look at the GDP in absolute numbers you will find a correlation.[2] GDP figures often cover up economic troubles which Small States experience.[3] The problem consists in the higher vulnerability of Small States, in general and economic terms. Briguglio has pointed out how smallness hampers economic growth and/or makes it dependant on others.[4]

To give some examples: Small Economies depend on imports from foreign markets because their smallness prohibits the production of any goods beyond agriculture necessities. To benefit from the human productivity rise Small (Island) States often import more than they can export.[5]

As a result of that foreign investors are needed to survive the trade deficit in the long run. Moreover, Economies of Scale is not possible and the fix costs are relatively high. If the Small State is an island, remoteness makes the situation even more difficult. Large stocks are necessary and the per-unit transport costs are enormous. Especially Small Islands States are dependant on external markets and external financing if they want a living standard that is near to the average living standard of the world.[6]

The literature has mainly pointed out three strategies for tackling vulnerability as a Small Island State: The MIRAB Model, the SITE Model, the PROFIT Model.[7]

In particular Bertram and McElroy have put a lot of work into analysing and classifying these concepts. They mainly focussed on small island economies in the Caribic and in Oceania.[8]

That brings me to the question, how do small states on dry land tackle their socioeconomic vulnerability? In the investigation of this question my scope of interest is Europe because Europe includes Small States on the continental mainland.

I have taken a look into the vulnerability index of Briguglio from 1985.[9] Antigua & Barbuda appears first as the most vulnerable state. The following ranks are dominated by caribic and oceanic islands. On rank 16 Malta shows up as the first European country. The next European nations to follow are Cyprus on rank 26 and then Portugal on rank 55. The fact that so few European states are in the top 50 can be attributed to the study design, which excludes small states as Monaco, San Marino.[10]

Malta and the first ranks are connected by their insularity, which seems to be an important variable for being vulnerable. Insularity has to be combined with smallness in order to achieve a high rank of vulnerability. No big island, whether Australia, New Zealand or Japan is in the top fifty of Briguglio’s index.[11]

In Europe there are more Small States on dry land than Small Island States. Can that be a hint that different economic strategies are used? To narrow my question down: Are the MIRAB, SITE, PROFIT Model used by European Small States ?

In the following I will discuss my chosen cluster of European states.

2. My Cluster of European States

Before I deal with economic strategies that tackle these difficulties I have to line out the characteristics of a Small State. In the literature there is no strong consensus on how to define a Small State.[12] Nevertheless, I want to mention a popular definition by Commonwealth Secretariat and the World Bank that “has generated the greatest volume of scholarship and interest […] . As such, the paradigmatic small state is one with a population of 1.5 million or below.”[13]

If we would use that definition for the European continent, there would be a lot of Small States. Andorra, Monaco, Cyprus, Montenegro, Iceland, San Marino, Vatican, Luxembourg, Liechtenstein, Malta and Estonia have less than 1.5 million citizens.[14]

I am aiming for an economic approach. So, my definition of a small state has to evolve from an economic perspective. The GDP figure is a typical type of economic data. I have compared the gdps’ of the mentioned small states by using world bank’s graphic interface. I compared the gdps’ of the year 2008 because it is the most up to date year for which data for all of the mentioned states is available, except for Vatican City State. I will exclude Vatican City later on.[15]

Abbildung in dieser Leseprobe nicht enthalten

You can see that Luxembourg is way ahead of all competitors, but you can also identify a big gap between Iceland and Malta, the second biggest gap between two countries in the chart. That makes me question the Small State definition used by the Commonwealth Secretary and the World Bank. I define a Small State as a state with a land size less than 5.000 km². In a major source for my upcoming economic investigation this definition has been used, so it would make sense to work with it.[16] Therefore Iceland, Estonia, Cyprus and Luxembourg fall outside of my scope of interest.[17] Moreover, it fits very well with the Small Island States of the caribic and oceanic area.[18]

The GDP gap between the states below Iceland on the graph is relatively close. So, the group of states below Island is not only connected by similar gdp numbers, but also comes within my 5.000 km² definition. A further justification of my approach: You can change the amount of inhabitants easier than you can change the size of your territory. If you are surrounded by sovereign states, you can not change it without starting a war or at least bargaining a secession. It is not in your control. The land size is an independent variable the population is not. The population is limited by the land area. If I lowered the population of the World Bank definition, Iceland would still be a part of the group, although its gdp is outstanding.

As stated previously I have excluded Vatican City. The Vatican does not fit into the group, which I am trying to carve out. Vatican City is the only mentioned state with a GDP not even in the billion dollar sphere and a land area of less than 1km².[19] Kiribati or the Marshall Islands are big states compared to the Vatican.[20]

Hence, here I draw the line between a Micro State and a Small State from an economic perspective.

My considerations have been guided by gdp figures, but my definition relates to land area.

Thus, Andorra, San Marino, Monaco, Liechtenstein and Malta remain to be investigated.

I have mentioned in my introduction that the European continent is interesting to me because it includes Small States in the continental mainland. Although Malta is an island it is going to be part of my investigation because it can help to identify if insularity is a requirement for the MIRAB/SITE/PROFIT Models. Nevertheless, that is a path that would follow after answering the question of this paper. My focus is doing an inventory: Are the MIRAB/ SITE/ PROFIT Models used by European Small States (Andorra, Monaco, San Marino, Liechtenstein, Malta)?

My scope of time goes from 1950-2016(17). I choose it because the data of the Models I use start in the 1950s approximately. The literature I have used also fits into that span. My paper is less about how the economy is structured in 2016 and more about the economic strategies that have developed in European Small States from 1950 to 2016(17).

3. Classification of Economic Models

I am going to mention the three typical strategies to tackle economic vulnerability as a Small State (Island): MIRAB-Model, SITE-Model, PROFIT-Model.[21]

a) MIRAB Economy

MIRAB stands for MI gration; R emittances, A id, B ureaucracy.[22]

[...]


[1] World Bank, GDP Ranking 2016. https://data.worldbank.org/data-catalog/gdp-ranking-table.

Accessed at 8 pm 24th July 2017.

[2] World Bank national accounts data, and OECD National Accounts data files. https://data.worldbank.org/indicator/NY.GDP.PCAP.CD. Accessed at 8 pm 24th July 2017.

[3] Lino Briguglio (1995): Small Island Developing States and Their Economic Vulnerabilities, World Development, Vol.23, No. 9, p. 1615.

[4] Ibid. pp. 1615-1632.

[5] Geoff Bertram, R.F. Watters (1985): The MIRAB economy in south Pacific microstates, Asia Pacific Viewpoint 26 (3), p. 509.

[6] Loc. cit. Briguglio (1995): pp. 1615-1632.

[7] Geoff Bertram (2006): Introduction: The MIRAB model in the twenty-first century, Asia Pacific Viewpoint, Vol. 47, No. 1, p. 1.

[8] Ibid. pp. 1-13. ; Loc. cit. Bertram (1985): pp. 497-519. ; Jerome L. McElroy (2006): Small island tourist economies across the life cycle, Asia Pacific Viewpoint, Vol. 47, No. 1, pp. 61-77.

[9] Lino Briguglio (1995): Small Island Developing States and Their Economic Vulnerabilities, World Development, Vol.23, No. 9, pp. 1627-1628.

[10] Ibid.

[11] Ibid.

[12] Paul Sutton (2011): The Concept of Small States in the International Political Economy, The Round Table: The Commonwealth Journal of International Affairs, 100:413, pp. 150-151.

[13] Quoted from: Ibid., p. 151.

[14] World Bank, Population Ranking 2016. https://data.worldbank.org/data-catalog/population-ranking.table. Accessed at 7 pm 27th July 2017.

[15] World Bank national accounts data, and OECD National Accounts data files, 2008. http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?end=2008&locations=CY-ME-MT-MC-AD-EE-IS-LU-LI-SM&start=2008&view=bar. Created at 6 pm 28th July 2017.

[16] Jerome L. McElroy (2006): Small island tourist economies across the life cycle, Asia Pacific Viewpoint, Vol. 47, No. 1, p. 63.

[17] Food and Agriculture Organization, Land area. http://data.worldbank.org/indicator/AG.LND.TOTL.K2. Accessed at 4 pm 30th of July 2017.

[18] CIA, Factbook 2013. Chart in: United Nations, Small Island Developing States in Numbers, 2013. http://unohrlls.org/custom-content/uploads/2014/04/SIDS_IN_NUMBERS_121813_FA_WEB.pdf. Accessed at 12 pm 15th August 2017.

[19] CIA: The World Factbook, 2003. https://www.cia.gov/library/publications/download/download-2003/index.html. Accessed at 2th August 2017.

[20] United Nations, Food and Agriculture Organization, data 1961-2016. http://data.worldbank.org/indicator/AG.LND.TOTL.K2?locations=MH-KI. Accessed at 5 pm 30th July 2017.

[21] Geoff Bertram (2006): Introduction: The MIRAB model in the twenty-first century, Asia Pacific Viewpoint, Vol. 47, No. 1, p. 1.

[22] Geoff Bertram (1985): The MIRAB economy in south Pacific microstates, Asia Pacific Viewpoint 26 (3), pp. 498-499.

Excerpt out of 19 pages

Details

Title
Micro States Economics. The MIRAB and SITE/PROFIT Model in European Small States
College
University of Göttingen
Course
Micro States (Seminar)
Grade
1,7
Author
Year
2017
Pages
19
Catalog Number
V376873
ISBN (eBook)
9783668543454
ISBN (Book)
9783668543461
File size
658 KB
Language
English
Tags
Socioeconomics, States, Model, European small states, Export
Quote paper
Nils Rieckmann (Author), 2017, Micro States Economics. The MIRAB and SITE/PROFIT Model in European Small States, Munich, GRIN Verlag, https://www.grin.com/document/376873

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